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The Receivables Turnover Ratio (RTR) in the construction industry is a critical financial metric that measures the efficiency with which a construction company can collect from its clients. This ratio indicates the number of times a company's accounts receivables are collected, or "turned over," during a specific period. It is calculated by dividing the company's net credit sales by its average accounts receivable. A higher RTR implies that the company collects its receivables more frequently, indicating efficiency in its credit and collection processes. On the other hand, a lower RTR suggests that the firm needs to revisit its credit policy as its customers may be delaying payments, which could impact cash flow - a vital aspect in the construction business.

A lender, in the context of the construction industry, is a bank, financial institution, or a private individual that provides funds for construction projects. They lend money with the understanding that the amount will be returned, often with interest, as per the terms of a loan agreement. The borrower can be a contractor, real estate developer, or a homeowner needing funding for a building or renovation project. Lenders assess the viability of the projects and the borrower's solvency before loan approval. They play a vital role in construction financing, facilitating economic growth by enabling infrastructure development. They also manage risks by using construction loans that follow a draw schedule that matches the construction stages, ensuring the project's timely completion. Ultimately, lenders power the various construction operations, providing necessary liquidity and fostering business growth and expansion.

A guaranteed maximum price (GMP) is a financial cap used in construction contracts, representing the highest possible price a client can expect to pay for a particular project. This cap encompasses raw materials, labor, indirect costs, and a margin for the contractor’s profit. 

While offering financial predictability and safety to the client, this method can significantly impact subcontractors. To transfer a portion of the financial risk, general contractors (GCs) typically offer subcontractors fixed-price (or lump sum) subcontracts. This setup incentivizes subcontractors to adhere to budgets and timelines, as cost overruns directly affect their profit margins (unless the client was the one who requested changes). Conversely, if the project is completed under budget, subcontractors may benefit by sharing the savings with the GC. Ultimately, GMP contracts foster transparency and collaboration, promoting shared responsibility for project success between all parties involved. 

In GMP contracts where payments are tied to milestones or completion percentages, accurate pay applications—a core feature of Siteline—are crucial to getting paid sooner. Siteline also enables subcontractors to track outstanding balances and monitor their cash flow in real-time, empowering them with insights to proactively manage their financial health—which is paramount in GMP contracts. Ready to take control of your cash flow under GMP contracts? See how Siteline can help by scheduling a demo today.